Coyne-Delany Co., Inc. v. Capital Development Bd. of State of Ill.

• Decision Date: 12 September 1983
• Docket Number: No. 83-1254,COYNE-DELANY,83-1254
• Citation: 717 F.2d 385
• Parties: CO., INC., Plaintiff-Appellee, v. CAPITAL DEVELOPMENT BOARD OF the STATE OF ILLINOIS, Defendant-Cross-Plaintiff-Appellant, v. HANOVER INSURANCE COMPANY, Cross-Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 385

717 F.2d 385

COYNE-DELANY CO., INC., Plaintiff-Appellee, v. CAPITAL DEVELOPMENT BOARD OF the STATE OF ILLINOIS, Defendant-Cross-Plaintiff-Appellant, v. HANOVER INSURANCE COMPANY, Cross-Defendant-Appellee.

No. 83-1254.

United States Court of Appeals Seventh Circuit.

Argued June 7, 1983.

Decided Sept. 12, 1983.

Jeffrey W. Finke, Deputy Atty. Gen., Chicago, Ill., for defendant-cross-plaintiff-appellant.

Robert H. Ellch, Scariano, Kula & Asso., P.C., Chicago Heights, Ill., for cross-defendant-appellee.

Before ESCHBACH and POSNER, Circuit Judges, and DUMBAULD, Senior District Judge. ^*

POSNER, Circuit Judge.

The principal questions for decision are the extent of the district court's power to deny damages to a defendant injured by the issuance of a preliminary injunction that is later reversed on appeal, and the proper standard for exercising that power.

The genesis of this case is an otherwise unrelated civil rights suit brought by inmates of the Illinois state prison at Stateville complaining about living conditions. A decree was entered requiring the prison to replace all of the plumbing fixtures in one of the prison's cellhouses. The state's Capital Development Board let a contract for the first of two projected phases of the work to Naal Plumbing & Heating Co., which subcontracted with Coyne-Delany Company for the flush valves required in the project. (Coyne-Delany is one of the nation's two principal manufacturers of flush valves for toilets, the other being the Sloan Company.) The valves were installed, and malfunctioned. After Coyne-Delany shipped redesigned valves which also malfunctioned, the prison authorities asked the Capital Development Board to designate another valve subcontractor in the bidding specifications for the second phase of the contract. The Board complied, designating Sloan.

Bids were received, but on May 7, 1979, two days before they were to be opened, Coyne-Delany sued the Board under section 1 of the Civil Rights Act of 1871, 42 U.S.C. Sec. 1983, and on May 8 it obtained a temporary restraining order against the Board's opening the bids. The state asked that Coyne-Delany be ordered to post a $50,000 bond, pointing out that the temporary restraining order was preventing it from proceeding with the entire project and that indefinite delay could be extremely costly. But Judge Perry, the emergency motions judge, required a bond of only $5,000, in the belief that the temporary restraining order would be in effect for only a week until Judge Bua could hear the motion for a preliminary injunction. However, at the preliminary-injunction hearing Judge Bua issued the injunction but refused to increase the bond.

Although the terms of the bond are limited to the damages caused by the temporary restraining order, which presumably were trivial, and a TRO bond does not automatically apply to a subsequently issued preliminary injunction, Steinberg v. American Bantam Car Co., 173 F.2d 179, 181 (3d Cir.1949); 11 Wright & Miller, Federal Practice and Procedure Sec. 2973, at pp. 655-56 (1973), the parties stipulated that the "bond was continued for the preliminary injunction." We shall therefore assume that the bond secures the Board against its damages from the preliminary injunction as well as from the temporary restraining order.

The premise of Coyne-Delany's civil rights suit against the Capital Development Board was that under Illinois law as expounded by the Illinois Appellate Court in Polyvend, Inc. v. Puckorius, 61 Ill.App.3d 163, 18 Ill.Dec. 524, 377 N.E.2d 1160 (1978), Coyne-Delany, as an indirect bidder on the plumbing contract for the Stateville cellhouse, had a property right of which it was deprived without due process of law by the Board's requiring Naal to use Sloan valves merely because the prison authorities had determined--unreasonably in Coyne-Delany's opinion--that Coyne-Delany's valves were defective. When he issued the preliminary injunction Judge Bua said that Coyne-Delany was likely to prevail on the merits, especially given the Board's refusal to submit the dispute over the quality of Coyne-Delany's valves to an impartial expert for binding determination, as Coyne-Delany had proposed. This court reversed the grant of the preliminary injunction, however. 616 F.2d 341 (1980) (per curiam). Noting that Polyvend had been reversed by the Illinois Supreme Court, 77 Ill.2d 287, 32 Ill.Dec. 872, 395 N.E.2d 1376 (1979), after Judge Bua had granted the preliminary injunction to Coyne-Delany, we held that under Illinois law a bidder, and a fortiori an indirect bidder, has no property right in being allowed to bid on a public contract and that Coyne-Delany therefore had no claim against the Board under the Fourteenth Amendment. 616 F.2d at 343.

Our decision came down on February 22, 1980, and a few days later the Board at last opened the bids that had been submitted back in May 1979. Naal was the low bidder, with a bid of $214,000, but its bid had lapsed because of the passage of time, and the Board had to solicit new bids. The new bids were opened on May 9, 1980. Although Naal's new bid, $270,000, was higher than its old bid had been, Naal was again the low bidder and was awarded the contract.

The Board then joined Hanover Insurance Company, the surety on the injunction bond, as an additional defendant in Coyne-Delany's civil rights suit, pursuant to Rule 65.1 of the Federal Rules of Civil Procedure, and moved the district court to award the Board damages of $56,000 for the wrongfully issued preliminary injunction and statutory costs (filing fees and the like, see 28 U.S.C. Sec. 1920) of $523 which the Board had incurred in the district court. Judge Bua refused to award either costs or damages. His opinion states, "the Court must weigh the equitable factors of the case, including whether the case was filed in good faith or is frivolous.... [T]he parties have stipulated that the case was filed in good faith and without malice. Further, it is apparent that the case was not frivolous. The law as it existed at the time the case was filed clearly favored the plaintiffs. It would be unreasonable to require a party to anticipate a change in the law and would be unconscionable to label a suit filed in good faith as frivolous where there is such a subsequent change."

There is no dispute over the amount of costs claimed by the Board; and while Coyne-Delany has not conceded that the Board incurred damages of $56,000 as a result of the delay of the project and the district court made no finding with respect to those damages, they undoubtedly exceeded $5,000, the amount of the injunction bond. True, 1979 and 1980 were years of rampant inflation; and to the extent that Naal's second bid was higher because of inflation the Board may not have been harmed--it had to pay more, but in cheaper dollars. (Another way of putting this is that the state had the use of $214,000 for an extra year at the high interest rates that prevail in times of inflation.) But the inflation between May 1979 and May 1980 was 14 percent (computed from Economic Report of the President 289 (Jan. 1981) (tab. B-50)), while Naal's second bid was 25 percent higher than its first. The specifications for the second round of bids were apparently the same as those for the first round. The Board must therefore have lost much more than $5,000 on the difference in the bids alone. And it may well have incurred other costs from the delay of the project by a year.

Although the district court has unquestioned power in an appropriate case not to award costs to the prevailing party and not to award damages on an injunction bond even though the grant of the injunction was reversed, the district court's opinion suggests that the court may have believed it had to deny both costs and damages because the lawsuit had not been brought in bad faith and was not frivolous. This would be the proper standard if the question were whether to award a prevailing defendant his attorney's fees (we disregard, since the Board has not requested an award of attorney's fees, the provision in 42 U.S.C. Sec. 1988 for awarding fees to prevailing parties in civil rights cases). In the absence of statute, an award of attorney's fees is proper only where the losing party has been guilty of bad faith, as by bringing a frivolous suit--frivolousness connoting not just a lack of merit but so great a lack as to suggest that the suit must have been brought to harass rather than to win. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 258-59, 95 S.Ct. 1612, 1622, 44 L.Ed.2d 141 (1975); Overnite Transport. Co. v. Chicago Industrial Tire Co., 697 F.2d 789, 795 (7th Cir.1983); Mary v. Ramsden, 635 F.2d 590, 603 (7th Cir.1980); Perichak v. International Union of Electrical Radio & Machine Workers, 715 F.2d 78 at 83, 85 (3d Cir.1983).

The rule is different for costs. Rule 54(d) of the Federal Rules of Civil Procedure provides that "costs shall be allowed as of course to the prevailing party unless the court otherwise directs ...." This language creates a presumption in favor of awarding costs. Delta Air Lines, Inc. v. Colbert, 692 F.2d 489, 490 (7th Cir.1982) ("where Rule 54(d) applies, the prevailing party is prima facie entitled to costs and the losing party must overcome that presumption"); Gardner v. Southern Ry. Systems, 675 F.2d 949, 954 (7th Cir.1982). The district judge can decline to award them but not just because an award of attorney's fees would not have been warranted--that is, not just because the losing party was acting in good faith. Id. at 954; Popeil Bros., Inc. v. Schick Elec., Inc., 516 F.2d 772, 776 (7th Cir.1975). "The losing party's good faith and proper conduct of the litigation is not enough ...." Delta Air Lines, Inc. v. Colbert, supra, 692 F.2d at 490.

The language of Rule 65(c), governing damages on an injunction bond, is only a little less clear than that of Rule 54(d): "No restraining order or preliminary...